Wednesday, March 23, 2011

As I promised to do here, I am posting a sequel to my original column: Ron Paul's Money Illusion. I want to thank everyone who took the time to comment and criticize the views expressed there because it has led to me to sharpen my thinking on the matter. I doubt that what I have to say here will sway opinion one way or the other, but I at least hope that the nature of my criticism will be more clearly understood.

The purpose of my original post was to critique a statement I've heard Fed critics repeat ad nauseam. The statement can be found in Paul's book End the Fed (p. 25):

One only needs to reflect on the dramatic decline in the value of the dollar that has taken place since the Fed was established in 1913. The goods and services you could buy for $1.00 in 1913 now cost nearly $21.00. Another way to look at this is from the perspective of the purchasing power of the dollar itself. It has fallen to less than $0.05 of its 1913 value. We might say that the government and its banking cartel have together stolen $0.95 of every dollar as they have pursued a relentlessly inflationary policy.

I think that the first part of this statement is true, so I do not wish to dispute this fact. On the other hand, I think that one might reasonably ask whether this fact alone should be a source of great consternation (especially in the presence of other, more pressing, policy concerns). As for the final sentence in the quote above, well, I think it is just plain false. Now let me explain why I think all this.
Let me begin with the picture most popular with end-the-fed types--a graph depicting the declining purchasing power of the USD. I use postwar data without loss of generality, since most of US inflation has happened since then.

This picture plots the inverse of the price-level (as measured by the consumer price index). I have normalized the price-level to $1.00 in 1948. It falls to roughly $0.11 in 2010. This corresponds to roughly a nine-fold increase in the price-level or about a 4.6% annual rate of inflation. (Note that the rate of inflation has slowed considerably since 1980).

The picture above is used by some end-the-fed types to great effect in generating anger and fear among some members of the population. Anger via the claim that the Fed has stolen 90% of (the purchasing power) of your money; and fear through the prospect of this purchasing power approaching zero in the not-too-distant future.

Graphs like the one above have their uses. But one should not get too carried away with a single picture. Let me draw you another picture. This one plots the inverse of the U.S. nominal wage rate (total nominal wage income divided by aggregate hours worked).

This graph plots the purchasing power of the USD, where purchasing power is now measured in terms of labor, rather than goods. This graph shows that you need a lot more money today than you did in 1948 to purchase 1 hour of labor. Another way of saying this is that the average nominal wage rate in the U.S. has increased by a factor of 25 since 1948. Is this a cause for alarm?

No. In fact, there is very little one can conclude from these pictures, which are plots of nominal variables. We need more information than this to make any substantive statements about the impact of nominal wage and price dynamics. In the absence of money illusion, people care about real variables--not nominal variables. To put things another way, people eat bread, not money. The nominal price of bread, in of itself, is an uninformative measure. What would be informative is its nominal price in relation to one's nominal income (or wealth). The first graph above has nothing to say about how nominal incomes have evolved.

Let me now combine the two graphs above into one picture, with both series inverted, and with both the price-level and nominal wage rate normalized to $1.00 in 1948 (the actual nominal wage rate was $1.43).

According to this (publicly available) data, the price-level (CPI) has increased by about a factor of 10 since 1948. But the average nominal wage rate has increased by a factor of 25. (There is, of course, considerable disparity in wage rates across members of the population. But I am aware of no study that attributes significant wage or income heterogeneity to monetary policy. Of course, if readers know of any such studies, I would be grateful to have them sent to me.)

The figure above implies that the real wage (the nominal wage divided by the price-level) has increased by a factor of 2.5 since 1948. This is undoubtedly a good thing because it implies that labor (the factor we are all endowed with) can produce/purchase more goods and services. More output means an increase in our material living standards (Though again, I emphasize that this additional output is not shared equally. But surely a laissez-faire world advocated by some is not one that would generate income equality either.)

Now, an interesting question to ask is how the picture above might have been altered if the price-level had instead remained more or less constant. Judging by the emails I receive, many people evidently believe that the nominal wage path depicted above would have largely remained the same (that is, they apparently seen no connection between nominal wages and the price-level).

If this was indeed true, then the average real wage in America would have increased by a factor of 25, instead of 2.5 under a regime of price-level stability. And if you believe this, or something close to it, then the conclusion would indeed be startling: the inflation generated by the Fed has apparently served only to reduce the purchasing power of labor (diverting resources to powerful capitalists). This claim--or some variation of it--is implicit in the quoted passage above.

I suggested, in my original post, that there is reason to believe that under an hypothetical regime of price-level stability, the nominal wage rate in the graph above would instead have ended up increasing only by a factor of 2.5 (more or less)--the factor by which real wages actually rose. This is what I meant by my claim of long-run neutrality of the price-level increase; and it is also what I meant by Ron Paul's Money Illusion (which is subtly different than claiming the superneutrality of money expansion; more on this later).

Some evidence in favor of my "long-run neutrality view" is to be found in the time-path of labor's share of income (GDP):

I see no evidence in the data here that our higher price level today has whittled the share of income accruing to labor. Moreover, I see no evidence suggesting that episodes of high or low inflation are related in any systematic way to the resources accruing to labor. (In fact, I see some evidence of a rising labor share during the high inflation decade of the 1970s.) But perhaps other data tells a different story. If so, I'd like to see the data (i.e., instead of a short email claiming that I am wrong).

And what about the effect of inflation on the return to saving? I received many emails like this one:

Please, Mr. Andolfatto explain to me how this works out for someone who has been a careful saver of his money and now sees the purchasing power of that money destroyed? Please explain to me how this works out for a retired person on a fixed income who sees the declining purchasing power of that income?

These are good questions. The way they are asked suggests that I am in favor of inflation. I am not. It's just that I do not want to overstate the economic significance of inflation. Especially a low and stable inflation rate regime, like the one we have been living in for the past 30 years. And especially in light of what I view as potentially much more significant economic problems.

The concern expressed above would certainly be valid if the following was true: [1] if many people are forced to save in the form of zero-interest cash; and [2] if inflation is high and volatile. There are many episodes in history where savers have been hurt by an unexpected increase in inflation. I do not wish to defend the actions of any agency responsible for episodes of high and volatile inflation. And certainly, there are many economists within the Fed that are critical of past (and even current) Fed policies.

But this is not the regime we currently live in. As I said, inflation has been (relatively) low and stable for over 30 years now. And the Fed is committed to keeping inflation to keeping inflation "low and stable" (implicit inflation target is 2%). The argument that a "careful saver" over the last 30 years "just now" sees the purchasing power of that money destroyed seems implausible to me. Most people do not hold the bulk of their savings in the form of cash. (And if people were holding their savings in the form of Treasury bonds, they would have experienced significant capital gains over the last couple of years with the decline in nominal interest rates.) I think its fair to say that most people, or the people who manage their money, expect inflation. Market-based measures of inflation expectations show that inflation expectations are currently around 2%; see here.

I might add, as an aside, that in the emails I received promoting this line of argument, the writer typically professed concern for the "poor and unsophisticated saver." It was interesting to note that in each and every case, the writer him/herself was always very eager to point out their own sophisticated saving behavior--having, for example, invested in gold and silver (as I show here, you would have done better investing in stocks).
Well, and what about those on fixed incomes? The writer above mentions retired persons on fixed incomes. I presume he means nominally fixed pension benefits? (These benefits are generally indexed to inflation, though perhaps imperfectly.)

I think that a lot of the concern here is with respect to the fact that the prices of some goods (like food and energy) have recently risen very sharply and that, for most people, there is no correspondingly sharp increase in nominal incomes. People are right to be concerned. Here is an interesting picture from the WSJ:

The data show that some prices are rising rapidly. Some prices are not moving much at all. And some prices are even falling. In short, there are economic forces at work that are changing the system of relative prices. These relative price changes reflect fundamental changes in the structure of supplies and demand in the world economy. These changes would occur whether the Fed was in existence or not. Indeed, we expect relative price changes to be a normal part of a laissez-faire economy.

Finally, someone posed the following question to me:

Please explain to me how this (inflation) works out for the rest of the country when Wall Street bankers are the first to get their hands on newly printed Fed money, so that they can bid up all kinds of prices, including rents on apartments, which makes it difficult for anyone but a Wall Streeter to afford to live in Manhattan?

There is no persuading the people who organize their worldview around a web of conspiracy theories, but let me try anyway. First, this makes it sound like the Fed simply hands out cash to people. It does not. The Fed is not permitted to hand out cash in exchange for nothing in return. When the Fed creates new money, it uses the new money to purchase assets from another party. The Fed engages in asset swaps; there are no "helicopter drops." (It is the government that injects money into the economy via purchases of goods and services.)

Indeed, the business of banking is mainly a business of creating liquidity through asset swaps (e.g., when you take out a mortgage, a private bank creates and lends you book-entry money in exchange for your house as collateral). Even in a private banking system, someone must be the first to get their hands on newly created money. Even under a gold standard, someone will be the first to get their hands on newly discovered gold. And as for the price of real estate in Manhattan...I'm not sure what to say. It is one reason why I live in St. Louis!
I want to return to the last sentence in the End the Fed quote above:

We might say that the government and its banking cartel have together stolen $0.95 of every dollar as they have pursued a relentlessly inflationary policy.

This claim is simply false. Let me explain why.

Monetary economists make a clear distinction between base money, broad money, and wealth. The layperson typically makes no distinction between "money" and "wealth." Wealth is denominated in dollars. But this does not mean that all wealth is in the form of dollars (most of it is in the form of physical capital). Most people will interpret "dollars" in the quoted passage above to mean "wealth." Thus, the statement de facto claims that the Fed bears responsibility for stealing 95% of our wealth. This is a preposterous claim.

It is true, however, that something has lost 95% of its value since 1913. But just what is this something?

Answer: It is the outstanding stock of base moneyin the year 1913. (One dollar created yesterday, for example, has not lost 95% of its value as of today.) This 1913 money stock constitutes a tiny fraction of our total wealth. Moreover, since it has been in circulation for almost 100 years (much of it held by banks themselves in the form of reserves), the loss in its purchasing power has been spread over countless individuals, agencies, and generations.

Having said this, it remains true that inflation constitutes a tax. Seigniorage revenue refers to the purchasing power the government creates through the act of creating new money. Seigniorage revenue is also sometimes called an inflation tax. As far as taxation goes, seigniorage in the U.S. is small potatoes; see here. It constitutes a tiny fraction of government revenue (the bulk of which comes in the form of direct taxation).

Some people wonder how this is the case today, given the massive expansion in the Fed's balance sheet. The short answer is that seigniorage comes from permanent increases in the supply of new money (where the new money is ultimately used to purchase goods, rather than assets). The Fed, in its commitment to keep inflation "low," has implicitly promised to unwind its balance sheet at some point in the future should circumstances dictate. (Unwind in the sense of selling off its accumulated holdings of income-generating assets in exchange for base money).

If the Fed maintains its credibility (and this will be the hard part going forward), then there is little reason to expect even a huge temporary increase in the supply of base money to have an explosive impact on inflation (Japan's own quantitative easing experience provides an excellent example of this). This is, of course, something that the Fed monitors very closely.

To conclude, I think that the "currency debasement hurting the poor unsophisticated saver and man-on-street wage earner" argument is largely overstated. The assertion that "the Fed has stolen 95 cents of every dollar" I view as absurd. There are legitimate criticisms one could level at the monetary institutions of this country, but these are not some of them.

There are fundamental market forces at work in today's world that are causing the return to labor, saving, and entitlements to vary over time. I think that there is good reason to believe that these fundamental or "real" factors are much more consequential than the monetary or "nominal" factors emphasized by some people. But this topic is best left for a future column.

Tuesday, March 8, 2011

I'm sure you have. We all issue promises of this sort. And we frequently use such promises as a form of currency. For example, we might say something like "Hey, why don't you give me a beer now...and let me buy you a beer next week?"

I have just described a simple credit exchange. Societies rely heavily on promising-making and promise-keeping. It is the foundation of all financial markets.

I'd like to point out something about the promises you make. They are made "out of thin air." The promises that other people make are also made "out of thin air" (including politicians like you-know-who). Oh, some may write the promises down in the form of IOUs or other legal documents. But really, as Chamberlain discovered on his return from Germany, we know the intrinsic value of paper (promises).

The fact that promises are made "out of thin air" does not mean they are worthless. The value of a promise is determined by the perceived (and ultimately, actual) credibility of the promise-maker to make good on his/her promises. The relevant concern of those who rely on financial agencies is the credibility of they claims they make. The fact that financial agencies issue promises "out of thin air" is a red herring. And if the charge is made with exclamation, well...forgive me for suspecting that the motive is to arouse impassioned anger, rather than rational discourse.

The Fed creates fiat money (yes, out of thin air). But fiat money in itself does not constitute a promise against anything in particular (on the other hand, there are those who argue that it is a promise to discharge a tax obligation). In a gold standard regime, a Fed note would constitute a claim against gold. But we do not presently live in a gold standard regime. So what sort of promise underlies fiat money?

Apart from any intrinsic value determined by its ability to discharge a tax obligation, the value of fiat money ultimately hinges on its scarcity. More precisely, it depends on how its supply is managed over time. Or even more accurately: it depends on the expectation of how its supply is to evolve over the indefinite future. This expectation hinges critically on the credibility of the money supply manager.

In our current regime, the Fed is (implicitly) promising to keep inflation centered around 2% per year. The actual inflation rate dipped considerably below this number during the past recession and it is now considerably higher (owing largely to the boom in commodity prices). But if one draws a trend line through these ups and downs, we're basically sitting close to 2%.

Now, we can argue at length about whether 2% is the right number. The Fed calls 2% "price stability," but clearly it is not price stability in a literal sense. The real rate of return on non-interest-bearing money is -2%. This is currency debasement; albeit, at a rather slow rate relative to the 1970s or Zimbabwe's recent experience. Price-level stability requires an inflation rate of 0%. The Friedman rule suggests that a moderate deflation is desirable.

Anyway, back to my main point. Which is that condemnations of the Fed based on charges of creating money "out of thin air" are off the mark. The discussion should instead center on whether the Fed, as currently construed, is an institution that can be trusted to make good on its promises. This is the same question one would ask of any agency, public or private.

And if the Fed is abolished, and then what? What replaces it? A gold standard? Here is what one person wrote to me on the subject:

And yes, a gold standard would be fine by me. Is there an argument against the gold standard that I don't know about? Also, as an example of hyperinflation, how about when Roosevelt rounded up everybody's gold in 1933, and then debased our currency by 50% ?

I think this highlights a point that I have been trying to make for some time now. The "gold standard" is nothing more than a promise made "out of thin air" by the government. Look at how easily Roosevelt abrogated that promise in 1933. What makes people believe that the same thing cannot happen again? (Related arguments apply to so-called "free banking" regimes.)

Sure, we might say that such acts are or should be prohibited under the Constitution. But the Constitution is also a document that has been fabricated "out of thin air." I have been told by some that the existence of the Fed is itself a violation of the Constitution. So you see how easy it is to violate that venerable document.

Imagine that it is somehow possible to make the gold standard credible and absolute. If this is possible, then it must also be possible to make a fiat money standard credible and absolute. Just replace the gold with fiat tokens. As a bonus we would have an efficiency gain (commodity monies are better utilized as commodities, rather than exchange media).

So, please, enough of this "out of thin air!" stuff. It's tiresome for those who know better, and distracting for those who do not. Let's divert attention to more substantive issues.

For example, the Fed has a legislated monopoly over the supply of small-denomination paper. Is this a good idea? What if we keep the Fed as is and allow free-entry into the business of money creation? If an unfettered private money system works well enough, it might drive Fed notes out of circulation. On the other hand, perhaps the demand for Fed paper will remain. Government paper (in the form of US Treasuries) drove out private money (AAA tranches of MBS) in the repo market in the past financial crisis. Now, isn't that interesting?

Sunday, March 6, 2011

Ah, what a lovely way to start the day. A glorious morning, cool and fresh. A meeting of aged soccer players on a lush and muddy turf. No broken bones. No pulled hamstrings. I even scored a goal. Oh, the joy.

And now back home to read over my fan mail. You know...I had no idea that Americans were so passionate. I think that
American-style passion frightens us little Canadians. I suspect that this is what makes Canada so dull. And it's probably the reason I left too. Welcome to the jungle, Mr. Andolfatto.

As many of you can imagine, I've been the recipient of hundreds of rather nasty emails lately. I don't know any other way to describe it except as "awesome." Oh, I don't especially like being called names and being insulted, but it's no big deal (academics need pretty thick skins to survive). The awesome part is how people are so eager to express their views. It is, I think, a part of what makes America great.

Now for a little story--some background, I guess. Long ago, a remarkable debate took place about the optimal way to organize an economy's money and banking system. The proponents of free-banking eventually lost out to those who favored some form of central bank regime. The nature of these debates are nicely summarized by Vera Smith in her book, The Rationale of Central Banking.

Then for a long time, it seemed that very few people were interested in this debate anymore. Oh, a few academics would talk about it here and there. But if one was interested in practical monetary policy issues, well, one simply had to take the existence of a central bank as given.

That attitude always struck me as wrong-headed. As a young academic, I was interested in the theoretical foundations for monetary exchange. And I became fascinated in the experiments with money and banking regimes that were tried in the past. I made a point of teaching this to my students. And, in particular, I emphasized the free-banking alternative.

And now I find myself employed at a central bank (I still retain affiliation with my university). Well, I'm at a regional branch of a central bank (there are 12 regional Feds). And because of my present employment, many people evidently believe that I am a hard-nosed central bank type whose sole purpose is to defend the institution and its policies. As if an academic could or would want to ignore 20 years of scholarly research on the subject just like that. No, that's not how it works--and it's not the reason I was hired by the St. Louis Fed (if it was, I would not have come).

I love the research division here in St. Louis. My colleagues are great and the intellectual atmosphere is vibrant. The debates we have among ourselves often get lively. And yes, we sometimes talk about the merits of gold standards, free-banking, etc. I have even invited George Selgin, an ardent and articulate proponent of free-banking, to visit us in St. Louis and give us a lecture on the topic (which he has agreed to do some time in the future).

As an academic who has devoted a considerable amount of time on the subject, I cannot say that I presently fall strongly on either side of the debate. I can see merits (and defects) in both points of view. And I think it is great that Ron Paul has brought the subject back into the spotlight. As an academic interested in the subject, it is no less than thrilling. I think I can speak for most of us economists working at the St. Louis Fed in saying that we welcome a healthy debate. (And do not make the mistake of thinking that all Fed economists necessarily fall on one side of the issue).

To make a solid case one way or the other, it is important to keep the facts straight. (Yes, I realize that I am setting myself up for more abuse but please, spare yourself the trouble.) Moreover, it is also important, I think, not to present data in a misleading light. Now, I do not think everything Ron Paul says is wrong. In fact, as I said in my original post, I appreciate the libertarian philosophy. But if one wants to promote libertarianism based on sound intellectual foundations, it does the cause no good to make and promote misguided statements about money, prices, and the role of central banks. History is replete with examples of bad government policies in place well before the existence of central banks. In my view, it is wrong to convey the impression that something close to economic nirvana will dawn in the absence of a central bank.

In my original post, I wanted to attack one particular idea promoted by Ron Paul. (I did not mean to attack the man personally, and I regret the adjective I used to describe what I thought of his idea). I want to be clear that the post was not meant to critique all or even most of the Congressman's ideas--nor was the post meant to serve as a defense for the Fed.

It is my belief that Ron Paul promotes a misleading argument concerning the fact that our price-level today is much higher today than it was 100 years ago. His argument implicitly suggests that nominal wages today would be roughly where they are at even in the absence of currency debasement. This is, in my view, just plain wrong.

But for people who believe it (and evidently there are many out there that do), it provokes rage against the Fed. It is as if the Fed has stolen virtually all of their wages and that real material living standards today would be much higher if only the price-level had remained at its 1913 level. This proposition is grossly at odds with the evidence, which shows roughly 2% annual real growth in per capita income and roughly stable income and expenditure shares. There is, of course, considerable discussion about growing income inequality. But almost every paper I read about this phenomenon seems to point either to skill-biased technological change or competition from emerging economies. I'm not sure what Fed policy has to do to with those forces.

I am no defender of inflation. But the US inflation rate has been low and stable for decades now. Seigniorage revenue is small potatoes relative to the appropriations made by Congress via direct taxation. Ending the Fed will do little, in my view, to diminish the level of those appropriations. Tackling that issue will take serious tax reform--a reform that would have to take place whether or not a Fed was in existence.

Now, there may be other reasons for abolishing the institution, but if so, then why not emphasize those? As I said in my original post, there are many legitimate arguments one could level at the Fed as an institution or in the way it conducts its policy. But it does no service to the libertarian cause to attack the Fed with misleading arguments (that are mixed in with other more legitimate ones). It does no good because opponents to the libertarian cause can latch on to the lame arguments and use them to discredit the more worthy ones.

The Fed was established by an act of Congress in 1913. The Fed is operating under the rules established by Congress. If you have a problem with these rules, then I encourage you to lobby your Congressional representatives to change them. Blaming the Fed for following the law as established by Congress (and other guidelines, such as the dual mandate) seems like a rather strange way to go. But hey--power to the people.

Friday, March 4, 2011

I've taken down my post entitled "Ron Paul's Money Illusion" because it seems to have provoked mindless rage rather than thoughtful debate.

A part of this is my fault for saying that, while I respected many of the Congressman's libertarian ideals, I thought that he could be more circumspect at times. Well, I didn't exactly use this language, if you know what I mean. And for that, I want to apologize to the Congressman and all of his ardent supporters.

Having said this, I stand by the substantive point that I was trying to make. That column, however, was written too hastily. So I think I'll rewrite it, this time a little more carefully, and with a little less colorful language (and maybe a little more data).

Thursday, March 3, 2011

For the 15 million Americans who can’t find jobs the labor market is like an awful game of musical chairs. There are many more players than there are available seats.

Yet at Extend Health, a Medicare health insurance exchange firm in Salt Lake City, the problem is just the opposite—a growing number of chairs to fill and not enough people with the skills to fit the jobs. “It seems like an oxymoron in this environment that you can somehow be challenged to find great workers,” CEO Bryce Williams admits, almost sheepishly.

Extend Health’s call center workers help retirees navigate the process of signing up for commercial Medicare Advantage and drug coverage plans. For this fall’s Medicare Enrollment season, the firm will need close a thousand workers. The ideal candidate is over 40, with a background of financial services in order to qualify for insurance licensing.

“They need to be able to pass the state of Utah exam, which is not easy, “he explains. “They need to have a background in comparing the financial metrics of trying to help someone compare and analyze and give great advice.”

Williams has hire a recruiter, plans to roll out billboards along Interstate-15 in Utah, and is now looking at establishing a new call center out of state where the firm can find more people to train and hire.

“We like being in Utah but at a certain point you max out on the total pool of people that you can tap," Williams says. “So, we're going to have to look at other states.” Part of Williams’ problem is that his business is in a sector that’s facing a skills gap.

A Tight Labor Market For Skilled Jobs

Overall labor demand softened in February, but online ads for computer science jobs were up more than 15 percent from January, according to The Conference Board Help Wanted Online Data Series (HWOL).

While there are more than twenty-five job seekers for every open position in fields like construction, in technology, health and science-related jobs the exact inverse is true.

For computer science jobs and skilled health care practitioners, there were just over three ads for every job seeker in February. For life sciences jobs like medical science researchers and chemists, the ratio was 2 to 1.

"It’s the equivalent of a seller’s market in real estate,” says Jeanne Shu, HWOL Project Coordinator. While those occupations are seeing a lot of growth, employers are scrambling to find available qualified workers.

“If they can't find the right person with the right skill set they'll hold out longer for them."

I figure that there's something more than "deficient demand" going on here. But maybe that's just me...

Wednesday, March 2, 2011

Here are a couple of slides, courtesy of my colleague Kevin Kleisen. The first depicts recent U.S. inflation, both core and headline.

So, following a rather sharp decline in the headline CPI rate, we see an even sharper increase more recently. The core measure, however, remains relatively low and stable.

This next graph depicts a variety of market-based measures of inflation expectations. You may recall that the Fed was recently concerned that inflation expectations were drifting too low (relative to the implicitly desired target or around 2%). Inflation expectations now appear to have converged to pre-crisis levels. One could make a legitimate case that to the extent this was a part of the goal for QE2, the policy was a success.

Of course, the fear that many people have is that inflation may somehow get out of control. It is a legitimate concern and one that ranks high on the list of FOMC members.

"Who will buy Treasuries when the Fed doesn't?" he asked. "I don't know."

I'm sure Mr. Gross is a smart guy. But statements like that just make him sound a tad foolish.

Think about it. A USD is the equivalent of a zero-interest-bearing small denomination Treasury bill. So when the Fed is purchasing longer dated Treasuries, what is it doing? It is selling zero-interest bills for (slightly) positive-interest bills. Would a deceleration in this asset-swap activity really have the dramatic effect Gross suggests? (He is suggesting a sharp spike in Treasury yields). I doubt it. In fact, the implied tightening is likely to keep a lid on inflation expectations and hence keep nominal interest rates low (via the Fisher effect).

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